Caisses and credit unions on the doorstep of the Ontario insurance market

This spring, the Ontario government may give caisses populaires and credit unions the green light to charge into the province’s insurance market.

A final decision may be announced this spring, when the Dalton McGuinty government files its 2006 budget in April or May.

The Insurance Journal learned of this development from an Ontario Finance Ministry spokesperson who asked not to be quoted. He refused to disclose the exact date the budget will be tabled, claiming that it is always kept confidential.

Neither would the source confirm whether the government had taken a clear stand in this matter, which has caused an outcry in the Ontario insurance industry.

“If the government must rule on this file, it will do so when the budget is tabled, not before. We will not comment on the decision before the government announces it,” the source said.

Queen’s Park launched a consultation on the reform of the law governing caisses populaire and credit unions in mid-December.

The Coalition of Credit Unions and Caisses Populaires of Ontario said that it expects a reply in the coming weeks.

Unlike their colleagues at Quebec-based caisses populaires of the Desjardins Group, employees of credit unions and caisses in Ontario are not permitted to directly or indirectly distribute insurance products to consumers.

Ontario credit unions or caisses are prohibited by law from owning insurance subsidiaries.

The Coalition wants to change that. Credit unions and caisses view the distribution of insurance products as a particularly desirable means of diversifying their revenue sources.

In November, the government released a public consultation paper on this debate, sparking a wrestling match between the credit unions and the Ontario insurance industry.

In response to Queen’s Park, the Coalition produced its own brief that states the demands of its members and suggestions on a proposal for insurance product distribution.

Several insurance industry stakeholders, including the advisor’s association, Advocis, also submitted briefs to the government. The industry alleges that giving credit unions access to the insurance distribution market runs directly counter to the interest of consumers.

Ontario credit unions’ and caisses’ demands are compounding the pressure on the insurance industry across Canada exerted by the country’s five leading banks.

For several years, the banks have lobbied Ottawa, unsuccessfully so far, to earn this same right.

Unfettered future

If Queen’s Park grants the credit unions’ and caisses’ wish, the newcomers plan to take the Ontario property and casualty (P&C) insurance and life and health insurance markets head on.

“We want the right to distribute all insurance products. That is, everything related to wealth management and financial planning, and the right to offer coverage for all P&C insurance risks,” says Lucie Moncion, president of the task force of the Coalition of Credit Unions and Caisses Populaires of Ontario.

The Coalition comprises four associations that represent the interests of Ontario credit unions and caisses in this file: Credit Union Central of Ontario, the Fédération des caisses populaires de l’Ontario, The Association of Credit Unions of Ontario and the Alliance des caisses populaires de l’Ontario, of which Ms. Moncion is the CEO.

Insurers’ capacity to offer the same products as credit unions put the caisses at a disadvantage, Ms. Moncion continued.

“Currently, insurance companies can extend loans, they can also receive deposits. We are asking the government to grant us the same powers as the fourth pillar of the financial industry,” Ms. Moncion explained. “We want to be able to operate in a market that offers the same development opportunities to all financial institutions.”

“When we analyze the needs of our members, insurance almost inevitably comes up,” Ms. Moncion explained. “We then have to ask them to consult an insurer broker instead.”

The problem in doing so is that credit unions and caisses risk losing some of their members to the hands of insurers. “The brokers, in turn, analyze the needs of our members,” she continued. “But the brokers are also able to offer banking products. That is why it is not uncommon for our members to agree to transfer their entire portfolio to an insurer that can meet all their financial needs under one roof. We too want to acquire the capacity to become a one-stop service provider.”

By accessing the insurance market, credit unions and caisses could better serve consumers that live far from the large centres such as Toronto or Hamilton, Ms. Moncion pointed out.

“We can also better meet the needs of the 40 municipalities situated in remote regions, where the only financial institutions are credit unions. There are no other suppliers there,” she explained. “We can give these customers access to insurance products. Otherwise, our members must turn to brokers and insurers that operate in the big cities, if they cannot be served in their region.”

The brief the Coalition presented to the Ontario government outlines three possibilities for insurance product distribution. First, credit unions and caisses want to be able to distribute products directly to consumers.

Another option is to refer credit union and caisse customers to insurance brokers, which implies a partnership with insurance industry players.

Alternately, credit unions are asking for permission to distribute their insurance products through subsidiaries that they own.

Interestingly, the Quebec caissassurance model, where credit union employees promote insurance products, is being held up as a shining example.

“Ideally, we would like to move to the Quebec sort of model,” says Art Chamberlain, spokesperson for the Credit Union Central of Ontario, a Coalition member.

“If the province does not want us to go that far, we suggested that we adopt something similar to the British-Columbia model,” he adds.

B.C. does not permit credit unions to distribute directly to consumers, but they can own their own subsidiaries, Mr. Chamberlain explains.

Quebec employees of Desjardins Group caisses populaires can refer consumers to one of the Group’s P&C or life insurance subsidiaries: Desjardins General Insurance (DGI) and Desjardins Financial Security (DFS).

Some of the 300 life insurance agents of DSF and the 425 P&C insurance agents of DGI cater to Desjardins members’ insurance needs.

In addition, the P&C subsidiary relies on a 200-agent call centre to which credit union members are directed, along with the general public.

“We believe that the adoption of the Quebec model will improve the quality of customer service. Our customers can then procure products that they cannot currently access,” Mr. Chamberlain added. “Our understanding is that the Quebec situation has boosted competition in consumers’ favour.”

Ms. Moncion also looks upon the Quebec model with interest, but says she would want to wait for the government’s decision before further commenting on this topic. “Provided that we get a positive response, we will then have to determine which model is best suited for the Ontario market,” she says.

Quebec would lend a hand

If the Ontario government accedes to the credit unions, the Desjardins Group, which is already present in Ontario through the Desjardins Credit Union, will then pitch in to build a distribution network.

“We could certainly help Ontario caisses out. We are already active in Ontario. In addition, as a company which has vast experience in caissassurance, we can certainly export our model to Ontario, which after five years since it came into being, is providing us with very good results here,” says Jean-Claude Arbour, vice-president sales, caissassurance at DSF.

“We will certainly look into this possibility. Obviously, it remains to be seen whether the Ontarian laws will allow it,” adds Jean Vaillancourt, general manager of operations at Desjardins General Insurance. “It will also have to be examined whether the potential is similar in the Ontario market,” adds Mr. Vaillancourt.

In Quebec, Desjardins has some five million members out of a population of seven million. Obviously, Desjardins’ presence in Ontario is much less extensive. Presently, its 23 Ontario caisses have 187,000 members.”

The caissassurance formula is running at full speed in Quebec, as the 2004 annual report of the Desjardins Group reveals. Much of the insurance premiums generated by the two subsidiaries originate from referrals by the credit unions.

Desjardins Credit Union was formed in 2000 by Ontario residents, with support from the Desjardins Group. The rationale behind the cooperative was to acquire the Province of Ontario Savings Office from the provincial government.

With total assets of $2.2 billion, Desjardins Group supplies financial services to 75,000 customer accounts. Through its network of 23 branches, including seven in Toronto, the Group is accentuating its Canadian presence and has acquired a distribution network that lets it offer its line of financial products and services in provinces outside Quebec.

Under an agreement between the Alliance des caisses populaires de l’Ontario and the Desjardins Group, Desjardins offers the Alliance’s 13 credit unions technological services, along with a full line of financial products and services similar to the ones currently offered by the caisses in Quebec and the Fédération des caisses populaires de l’Ontario. The agreement has a five-year duration, and is renewable every five years thereafter.